Navigation

Post navigation

NIGHTMARE CONDO

Continuation of my discussion on Condo Ownership. It can go very well or it can backfire. Costing the unsuspecting buyers their life savings. It is totally understandable that many who buy a home/property that is classified as a condominium may not fully comprehend what they are buying into. Primarily, unlike buying one’s own home on one’s own lot or land, with a condominium one buys (a) a commonly shared building, and (b) commonly shared land. The smaller the building, the easier it is to manage, in terms of repairs, regular maintenance and operation (heating, water, sewer, other municipal expenses). Operation also includes managing contracts for gardening, cleaning the building and grounds, and garbage removal etc. All these costs are shared by a number of owners who have purchased a share and reside in their own (four walls so to say) suite, for which they are responsible, and which they may improve or renovate, or repair. All owners also pay regular monthly fees for any of those expenses that affect the common shared portion. More often than not, there exist property management companies who under contract with all owners have the responsibility to manage the building and grounds, finances and insurances and sub-contracts for repairs, maintenance and operation. One of the major components of a good financing plan is (a) receiving sufficient monthly fees from the owners to build up a good solid contingency fund for future bigger expenses; (b) to be accountable to all owners and provide regular financial statements including audits by an independent auditing company; (c) manage a larger building responsibly, with transparency and allowing for regular information disclosure. Else, the situation arises of the NIGHTMARE CONDO. Because not only does the management of a condo corporation involve one property manager, but also a whole committee or group of people – themselves owners – who regularly meet and take decisions. Which is commendable, being volunteer positions, but can backfire when certain elements of “being on a power trip” play into this. From the four condo homes I have owned and never had any problems, until now, a slight warning: When buying a condo, look carefully at all condo documents (‘subject to purchase’), check the contingency fund (how much money is available for future larger expenses). With older buildings, after 30 or 40 years, one could assume that there should be a healthy fund. If monthly fees were not raised for years, then there is not enough money. Also new now as a rule is the Depreciation Report which is a fairly large document showing what systems or parts of the property need larger expenses within which time frame. If future expenses – let’s say 30 years forward – exceed the assessed value of the building, a purchase of any unit in that building would not be advisable. A good rule of thumb is: Buildings depreciate when they age, while land appreciates. All in the context of rising or falling property markets, of course.